unit 3 macro

If there is an adverse (negative) short-run aggregate supply shock due to an increase in the price of natural resources and the government pursues no policy to address the supply shock, then which of the following will occur in the long run? A. Nominal wages will fall with no change in the natural rate of unemployment. B. Inflation will rise and nominal wages will fall. C. Deflation will worsen and nominal wages will rise. D. Aggregate demand will increase to restore full employment. E. The long-run aggregate supply curve will shift right and increase unemployment.

A. Nominal wages will fall with no change in the natural rate of unemployment.

Which of the following will most likely cause the short-run aggregate supply curve to shift to the left? A. A decrease in nominal wages B. A decrease in the expected rate of inflation C. An increase in energy prices D. An increase in the price level E. An increase in the size of the labor force

C. An increase in energy prices

The movement from point g to point h is best described as which of the following? A. A decrease in full employment output B. A decrease in aggregate demand C. An increase in real output due to an increase in the price level D. An increase in real output due to technological change E. An increase in unemployment

C. An increase in real output due to an increase in the price level

An economy is in long-run macroeconomic equilibrium. What will be the short-run effects of an increase in investment spending? A. An increase in real output, an increase in unemployment, and a decrease in the price level B. An increase in real output, an increase in unemployment, and an increase in the price level C. An increase in real output, a decrease in unemployment, and an increase in the price level D. A decrease in real output, a decrease in unemployment, and a decrease in the price level E. A decrease in real output, a decrease in unemployment, and no change in the price level

C. An increase in real output, a decrease in unemployment, and an increase in the price level

Which of the following explains why the long-run aggregate supply curve corresponds to the production possibilities curve? A. Both curves are downward sloping. B. Both curves illustrate flexible wages and prices. C. Both curves illustrate the maximum sustainable capacity. D. Both curves illustrate the trade-off between inflation and unemployment. E. Both curves illustrate short-run macroeconomic equilibrium.

C. Both curves illustrate the maximum sustainable capacity.

Which of the following will remain unchanged when the price level decreases? A. Inflationary expectations B. Aggregate quantity demanded C. Long-run aggregate supply D. Nominal wages E. Nominal output

C. Long-run aggregate supply

Assume the countries of Ornania and Kumbagi are major trading partners. Ornania is currently in long-run macroeconomic equilibrium. As a result of a recession in its economy, Kumbagi decreases its demand for goods produced in Ornania. Which of the following will occur in Ornania in the short run? A. The aggregate demand curve will shift to the right, causing the actual rate of unemployment to exceed the natural rate of unemployment. B. The aggregate demand curve will shift to the left, resulting in an inflationary gap. C. The aggregate demand curve will shift to the left, resulting in a recessionary gap. D. The short-run aggregate supply curve will shift to the left, resulting in an inflationary gap. E. The short-run aggregate supply curve will shift to the left, resulting in a recessionary gap.

C. The aggregate demand curve will shift to the left, resulting in a recessionary gap.

Which of the following changes will necessarily cause inflation? A. A decrease in aggregate demand and a decrease in short-run aggregate supply. B. A decrease in aggregate demand and an increase in short-run aggregate supply. C. A decrease in aggregate demand with no change in short-run aggregate supply. D. An increase in aggregate demand and a decrease in short-run aggregate supply. E. An increase in aggregate demand and an increase in short-run aggregate supply.

D. An increase in aggregate demand and a decrease in short-run aggregate supply.

Given the graph of the short-run aggregate supply (SRAS)(SRAS) and long-run aggregate supply (LRAS)(LRAS) curves above, which of the following is true? A. At point Z, the economy has cyclical unemployment. B. At point Z, the economy is in long-run equilibrium but not in short-run equilibrium. C. At point Y, the natural rate of unemployment is zero. D. At point X, the economy is experiencing a recessionary gap. E. At point X, there is no frictional unemployment.

D. At point X, the economy is experiencing a recessionary gap.

An economy is currently in short-run equilibrium, and real output is below the full-employment level of output. Which of the following market adjustments is most likely to occur in the long run? A. The recessionary gap will create upward pressure on prices, shifting the aggregate demand curve to the left. B. The existence of cyclical unemployment will increase consumption spending and increase real output. C. Full-employment output will fall to equal the short-run equilibrium real output. D. Nominal wages will fall, shifting the short-run aggregate supply curve to the right. E. Input prices will increase as firms compete for labor and capital.

D. Nominal wages will fall, shifting the short-run aggregate supply curve to the right.

In the AD−ASAD−AS model, which of the following is true? A. The economy is in an inflationary gap when the short-run equilibrium real output is below the long-run equilibrium real output. B. The economy is in an inflationary gap when the short-run equilibrium real output is at the long-run equilibrium real output. C. The economy is in a recessionary gap when the short-run equilibrium real output is at the long-run equilibrium real output. D. The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output. E. The economy is in a recessionary gap when the short-run equilibrium real output is above the long-run equilibrium real output.

D. The economy is in a recessionary gap when the short-run equilibrium real output is below the long-run equilibrium real output.

Which of the following will cause a rightward shift of the short-run aggregate supply curve? A. An increase in consumption spending B. An increase in nominal wages C. An increase in income taxes D. A decrease in the price level E. A decrease in the costs of production

E. A decrease in the costs of production

Which of the following must be true in the long run? A. Production increases when prices increase. B. An increase in the price level reduces aggregate demand. C. The natural rate of unemployment is not affected by changes in production capacity. D. Full employment increases when price level decreases. E. Prices and wages are flexible.

E. Prices and wages are flexible.